Lagarde: ECB to provide favourable financing conditions

The President of the European Central Bank, Christine Lagarde stated in the press conference on Thursday that the Central Bank is providing favourable financing conditions in the Euro-area. The bank announced extensions to its stimulus packages while keeping the rates at the same time unchanged. The Central Bank also updated its estimates of the last quarter 2020 economic outlook downwards and said the bank expects the inflation remain negative until early new year 2021.

Mrs Lagarde also said that the Central Bank will be monitoring the euro exchange rate against the dollar while it plays an important role towards prices. The euro is now trading at 1,2142 dollars while for example in May the euro was trading below 1,12 dollars. The price stability is the mandate for the Central Bank and the target is about 2 % . According to the latest macro projections from the Central Bank, the inflation is expected to be 1,4 % in 2023.

The ECB is having its strategy review update and part of it, it will also discuss the climate change and its role in the monetary policy. According to Mrs Lagarde, there are different opinions of the role of the climate change in the strategy review but the bank will debate about the issue. According to her, it is a step by step process and it is a question of direct and indirect impact on assets and economies. The Central Bank (banking supervision) has said earlier that it will conduct the risk management analysis of the climate change impact on banking sector and banks, starting next year.

Lagarde: ECB will look at all the instruments

According to ECB President Christine Lagarde the Central Bank will look at all the instruments in its evaluation of how to mitigate the pandemic and its impact on the euro-area economy. She made the comments in the press conference today in Frankfurt.

The Central Banks expects the inflation to stay negative until the early 2021 and the last quarter economic growth is expected to be weak due to the latest lockdowns in France and in Germany.

The ECB is having its internal strategy review related to inflation target and how the Central Bank could follow also the impact of the unemployment in the area as part of the economic activity and growth. At the moment, the bank has price stability as its strategic target.

Mrs Lagarde reminded about the long-term financing tool for banks (TLTROs) in order to help the economies to recover. According to her, the central bank is offering bank lending with negative 1 % rates with favourable conditions in order to help for example the small businesses.

With increasing coronavirus cases in Europe, the ECB also said it is following how the vaccination is proceeding next year in the euro-zone and its impact also in the recovery. She said that she would not be surprised if there would be more fiscal stimulus packages in the member countries to tackle the pandemic.

ECB Lagarde: ECB strategy review on agenda

The President of the ECB Christine Lagarde said in the press conference on Thursday that the Central Bank has more info about its strategy review on late September, 23rd.

According to her, the ECB has noticed the US Federal Reserve strategy review to integrate more the employment in its monetary policy. Lagarde said that the ECB’s focus is on price stability, but how the rising unemployment will have impact on the future decisions will be seen.

The ECB estimates, that the GDP will fall 8 % this year, and increase 5 % in 2021 and increase 3,2 % in 2022 in the euro-area. According to the bank, the cumulative decline was 15,1 % in the first half of 2020.

-The recovery is broadly in line with the estimates published in June. However, economic activity remains well below pre-pandemic levels. Recovery is asymmetric across sectors and countries and remains subject to elevated uncertainty, the ECB said.

Inflation is expected to turn positive in the early 2021. In August, the inflation turned negative 0,2 % after being 0,4 % in July and 0,3 % in June.

EU leaders to talk about pandemic recovery fund this week

The EU leaders will talk about the pandemic recovery fund this week on Friday and Saturday at their Council meeting in Brussels. The Commission has outlined the proposal for the meeting and it is expected that the discussions will be long.

On Thursday the European Central Bank with its leader, President Christine Lagarde will be having a press conference with possible monetary actions and insights related to the EU-area economic situation. Financial markets do not expect any changes in the interest rates at this meeting but there might be some add-ons related to the bond buying programmes.

The Commission proposal of the recovery fund is 750 billion euros. According to the Commission proposal, it ensures the money goes to the countries and sectors most affected by the crisis: “70% of the Recovery and Resilience Facility would be committed in 2021 and 2022. 30% would be committed in 2023, taking into account the drop in GDP in 2020 and 2021. The total envelope should be disbursed by 2026”, the proposal highlights.

-Secondly, 30% of funding will target climate-related projects. Expenses under the MFF and Next Generation EU will comply with the EU’s objective of climate neutrality by 2050, the EU’s 2030 climate targets and the Paris Agreement, the proposal states.

The third conditionality proposed by the Commission is linked to the rule of law and the European values.

According to the proposal, repayments would start in 2026, and this commitment enhances the pressure on introducing new own resources.

-There would be a new own resource related to the use of plastic waste starting in 2021. The Commission would put forward a proposal in the first half of 2021 on a carbon adjustment measure and a digital levy would be introduced by the end of 2021. The Commission would then come back with a revised proposal on ETS and finally work would continue on the project of a financial transaction mechanism, the proposal says.

There is also a reserve of 5 billion euros for Brexit expenses after the transition period ending at December 2020.

The proposal includes also an increase of funding in the health sector, in line with the Commission proposal in response to COVID-19 and its consequences.

During the EU Council meeting, the leaders will also talk about the budget for the next seven years, which is 1850 billion euros (2021-2027).

• a revised long-term EU budget of €1 100 billion for 2021-2027
• a temporary reinforcement of €750 billion ⁠– Next Generation EU

The new 750 billion euros fund will be governed by the EU Commission as a new tool for the Commission. This new funding has raised issues like governance of the fund, financial details of the loans/grants and the linking to the EU Budget. In practise, this will mean that EU member states grant the Commission the right to act like corporate Treasury to raise the needed money direct from the financial markets.

The member states are expected to discuss the recovery fund more in details during the EU meeting. It is also expected that the concerns from Netherlands, Sweden, Austria and Denmark related to the repayments of the loans will be discussed then.

Lagarde says a good solution with German court is possible

The President of the European Central Bank, Mrs Christine Lagarde said in the bank´s press conference that a good solution with the German court is possible. She said that it is a matter with the German Government and Parliament a like. The German court asked about the ECB´s bond programme and if the size of actions were in line with the central bank´s mandate.

-The European Central Bank is subject to the jurisdiction of the Court of Justice of the European Union. And PEPP (bond-buying programme) has been judged by the court of Justice “in line with our policy mandate”, she said in the press conference today on Thursday.

Mrs Lagarde also mentioned that the ECB is confident that “a good solution” will be found.

She reminded, that at that time, on March 18th when the PEPP was created, the pandemic started in Europe and the financial pressures were growing in the markets. Market liquidity and markets stability were pressed and it came obvious to the Central Bank, that massive actions were needed. The PEPP programme was launched on March 28th to the markets.

Also the outlook for the price stability has changed from that time. For example the estimate for the inflation was 1,6 % in March, when it is now 1,3 % for the year 2022. The euroarea inflation is expected to be 0,8 % next year.

According to Mrs Lagarde, it is obvious that the estimate is not close the Central Bank´s inflation target (near 2 %). The GDP is expected to fall in the euroarea 8,7 % this year and rebound to 5,2% growth next year and to 3,5 % in 2022. She reminded that the growth estimate is still uncertain, while today the figures show that the consumer spending and investments have fallen sharply.

The ECB is calling banks to use their lending capacity to corporates, small and medium size companies and households. She reminded that starting from June, the banks can have minus 1 % rates from the central bank.

Mrs Lagarde also said that there are several reasons why the Central Bank decided today to increase the PEPP by 600 billion euros to 1,350 billion euros all together and extend the duration to the June 2021. – The Central Bank wanted to ease the financial conditions in the markets, to safe the monetary policies to all asset classes and to help the euroarea back to the pre-covid inflation paths, she said.

ECB Lagarde: Common EU-fiscal policy “highly desirable”

The President of the European Central Bank Christine Lagarde said today that common European fiscal policy is “highly desirable”. She was speaking in Florence in the State of the Union conference organized by the European University Institute.

She also reminded that the eurozone is facing the economic recession together so  the actions should be also united and coordinated.

-Trade within the euro area accounts for 45% of GDP. The success of the Single Market means that supply chain integration is three times tighter within the euro area than with the rest of the world. As a result, analysis by the ECB finds that a common shock is amplified by about 30% – meaning all countries have to act together to mitigate large crises effectively, she reminded.

She also pointed that crisis can be the base for the future growth and cohesion.

-First, it will help bridge the gap for Member States and counter that risk of divergence. Given the fiscal needs already on the horizon, it needs to be swift, sizeable and symmetrical, she said.

-Second, it will help guide us towards the Europe we want to build after the crisis. We have been given a chance to take a leap forward: to reimagine our social contract, reconsider Europe’s strategic autonomy, and recognise the risks of not taking the environment seriously. These are all areas where acting together is in our common interest, Lagarde said.

-Let me give just one example: we have now experienced the consequences of a systemic ecological crisis, and we are also likely to face a period of weak private investment as firms repair their balance sheets. Public investment will have to fill the gap. It makes sense to use this opening to accelerate the transition to a green economy and hit our climate targets, she continued.

-In sum: this is our generation’s “Schuman moment”. We have been passed the baton of European integration. We are seeing our de facto solidarity all around us. And we are being asked to act, as those before us did, by strengthening Europe in response. I am confident that we will recognise our historical responsibility and rise to the challenge, she concluded.

Today Friday the 8th May is the 75th anniversary celebration of the end of  the Second World War. Tomorrow Saturday the 9th May marks the 70th anniversary of Europe’s response to the Schuman declaration, which was the launch of the European integration and union.

ECB: Favourable conditions should encourage banks to extend loans to all private entities (updated)

The massive monetary and refinancing easing should encourage banks to extend loans to all private entities, the ECB said today. The President of the ECB, Christine Lagarde said in the bank´s press conference, that the easing in TILTRO 3 and other pandemic measures should encourage banks to extend their loan activities to eurozone companies and households.

According to her, the Central Bank has today also announced the further easing of the TILTRO3 rates by 25 basis points so that the rate for banks can be minus 1% during the period on June 2020-June 2021. For banks it means that the liquidity provided is about 3 trillion euros with negative rates.

The massive monetary and purchase policy of the ECB is now over one trillion euros during this year she reminded and added that the bank is constantly monitoring the situation and making new adjustments if needed.

Mrs Lagarde welcomed also the planned recovery fund to support the eurozone economies in the recovery. She said that strong, timely efforts are needed in the recovery phase.

– On behalf of the eurosystem and ECB, we would like to express our sympathy and condolences for those who are suffering, she said.

 

 

ECB Lagarde: ECB fully committed to support all the citizens (updated)

The President of the European Central Bank, Christine Lagarde said today in the bank´s press conference that the ECB is fully committed to support all the citizens in the euroarea.

Mrs Lagarde said that the ECB estimates the annual GDP decrease  to be  between 5-12 % during this year. During the first quarter the GDP declined by 3,8 %. According to the Central Bank the final figures will depend much of the length of the lockdowns and how the growth will start again.

The Central bank also announced further actions to ease the financial market conditions and according to new guidelines they have reduced the  rate on TILTRO3  to 50 basis points below the average interest rate on the main refinancing operations over the same period. This is for the period June 2020 – June 2021.

The ECB has also been conducted asset purchases under the new pandemic emergency  programme (PEPP) from March onwards and according to ECB the purchases will continue with flexible manner over time and across asset classes. This programme has the envelope of 750 billion euros and the purchases are expected to continue until the coronavirus crisis phase is over but “in any case until the end of this year”.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The euro

EU leaders planned over trillion euros economic package

The EU leaders planned over trillion euros economic package to tackle the coronavirus outbreak to the eurozone economies. It is expected that the EU Commission will make the drafts of the package and the recovery fund by the beginning of May. Totally the economic packages have reached over one trillion euros. Some calculations indicate that the sum is over 2 trillion euros.

During the video meeting the European Central Bank´s President Christine Lagarde said that the eurozone economy will show 5-15 % drop in the GDP and called actions sooner than later in order to minimise the impact.  The EU finance ministers earlier announced economic stimulus package of over 500 billion euros was also agreed.

The biggest debate was about the model of the financing, if it would be loans or grants. It is expected that it could be loans, which the EU Commission would issue with its triple A rating. It is also seen as a political issue to strengthen the EU area with the crisis as one of the leading trade partner for other global economies like the US and China.

German´s Chancellor Angela Merkel said that Germany is ready to support the recovery fund and show solidarity. Her message was that “what is good for Europe, is good also for Germany.”

In the Euro-area, Italy’s GDP is expected to show 9 % decline, Spain’s 8 % and Germany´s 7,2% according to Bloomberg.

During the first months of the 2020, the euro countries have issued totally over 210 billion dollars of sovereign bonds. According to ECB info, the main issuers have been Italy (60,9 billion euros), France (52 billion euros) and Spain 38 billion euros.

The maturities of the bonds have mainly been 10 years or longer, 15-20 years. France, Spain and Italy have issued also bonds over 30 years.

During the corona crisis, the spread with the German 10-year Bund has been increasing.

This week also the ECB announced that it is now accepting corporate bonds with no investment rating from banks as part of its asset purchase programme, as did the US Federal Reserve earlier. Earlier the ECB also said that it is accepting also Greek loans, which are rated as sovereign junk bonds.

It is expected that the recession in the euro area is likely to press the credit ratings lower and in order to keep the economy active, the ECB and Fed have made the regulatory adjustments for the markets.

ECB Lagarde: Climate Change is a financial risk

The President of the European Central Bank, Mrs Christine Lagarde said in the banks press conference that the Climate Change is a financial risk and that the Central Bank will also review its tools and guidelines for climate risk management in its monetary strategy review during this year.

-Climate Change is everybody’s responsibility, she said in Frankfurt on Thursday.

According to her, the Central Bank started its year long strategy review regarding the monetary policy, inflation target setting, growth measures and communications. Climate Change is a big issue, related also the ESG criterias (environmental, social and governance) and according to Mrs Lagarde, the Central Bank will have to measure the monetary policy portfolio also for this risk assessment and forecast in the future.